Employers In Puerto Rico

A large number of businesses located in states in the United States that have been impacted by hurricanes, including Texas, Florida, and Georgia, have already reached out to ADP for assistance in determining and claiming the employee retention credits to which they are entitled.

It has been over a year since Hurricanes Irma and Maria wreaked havoc on Puerto Rico, an unincorporated territory of the United States, yet the island is still struggling with substantial difficulties in the rebuilding process. However, in the meantime that the government is working to fully restore the electric grid, roads, and other infrastructure, more assistance is on the way for employers in Puerto Rico beginning in the beginning of June. This assistance will come in the form of an Employee Retention Credit (ERC), which will be paid out as a direct-cash grant.

Regrettably, one does not automatically obtain the Puerto Rico ERC upon meeting the requirements. Employers are required to fulfill a number of stipulations before they can make a claim for the ERC. These stipulations include providing a substantial amount of complex documentation, accurately calculating the amount of the ERC to which they are entitled, and submitting an accurate application for the ERC online. To successfully navigate this procedure requires both time and experience, which many employers may not have available. However, how many businesses can afford to turn away potential revenue?

To begin, some General Information

Following a string of hurricanes that struck Texas, Florida, Georgia, Puerto Rico, and the United States Virgin Islands, the United States Congress moved swiftly to pass the Disaster Tax Relief and Airport and Airway Extension Act of 2017 in order to provide tax relief for employees and businesses that were adversely affected by the storms. It was signed into law on September 29, and it included a tax credit for employers who continued to pay their employees in the designated disaster areas during a “period of inoperability” caused by one or more of the hurricanes. This credit was given to employers who did not experience a loss of business as a result of continuing to pay their employees.

What Sets This Tax Credit Apart From the Others?

The ERC has been made accessible to qualifying employers in all impacted locations in the form of a regular federal income tax credit. The only exception is Puerto Rico, which has its own tax structure and is not included in this. On the other hand, the Puerto Rico Treasury, known as the Departamento de Hacienda, recently came to an implementation agreement with the United States Treasury. This deal ensures that ERCs continue to receive funding from the federal government.

The implementation agreement enables Puerto Rico to use its own online system to administer ERC claims and authorizes a direct cash payment option for eligible employers located in Puerto Rico. Additionally, the agreement allows Puerto Rico to use its own online system to administer claims for unemployment insurance. To be more specific, applications for the ERC in Puerto Rico must be submitted solely online (there is no provision for paper applications), and any applicable ERC amounts will be deposited directly into the bank accounts of eligible employers. This is in contrast to the situation in the United States, where eligible employers in the United States must instead claim ERCs on their income tax returns. Once it is operational, Puerto Rico’s online system for the ERC will be available to receive and process applications until the deadline of November 30, 2018.

Who May Be Entitled to Receive the Credit?

In order to be eligible, an employer must have had an active business in the area that was declared a disaster zone as of the date of the applicable hurricane, must have been rendered inoperable on any day after the date of the hurricane as a result of damage from the hurricane, and must have continued to pay eligible employees (i.e., employees whose primary place of employment on the date of the hurricane was in the disaster area) during the period of inoperability. The effective date of the Hurricane Maria relief program is September 16, 2017, and any Puerto Rico-based employer may be eligible for assistance under this program. The date of implementation is September 4, 2017, and it applies to employers with locations in certain municipalities that were hit by Hurricane Irma. The eligibility period closes on or before December 31, 2017, at the very latest.

What Is the Amount of the Credit?

The amount of credit available is proportional to the size of the business. The maximum credit available to big employers (defined as employers with taxable revenue that is greater than $10 million) is equal to 26 percent of the first $6,000 of qualified wages, or up to $1,560 per employee. The maximum credit available to employers with taxable incomes of $10 million or less is equal to 32 percent of the first $6,000 of qualified wages, or up to $1,920 for each employee.

What Are Some of the Things That Make Applying for a Tax Credit More Complicated?

In order to calculate the credit, it is necessary to gather and validate a substantial amount of information. It requires a comprehensive review of the payroll files, the identification of eligible locations and employees, the determination of what wages qualify and were paid during periods of business inoperability, the identification of when the business resumed significant operations, and the application of the wage limit in order to calculate the applicable credit amounts.

For the purpose of completing an application that is correct, it is essential to have a working knowledge of terms such as “qualified employees,” “periods of inoperability,” and “qualifying wages.” These terms add another another layer of complexity to the administrative work that has to be done by an employer’s internal personnel.

Why You Should Consider Collaborating with Us?

Hundreds of businesses located in states in the United States that have been impacted by hurricanes, ranging from Texas to Florida and Georgia, have already reached out to us for assistance in locating and claiming the ERCs to which they are entitled. We have a significant amount of experience in assisting employers in determining periods of inoperability, qualified wages, and eligible employees as a result of the company’s involvement in the U.S. version of the ERC as well as other similar U.S. hurricane employee retention credits that have been made available in the aftermath of previous storms. This level of experience is made possible by our involvement with the ERC.

Bottom line? Many businesses just do not have the resources, including time and knowledge, to take on the complicated administrative load that comes along with all of this on their own. Employers who use our services are able to discover and claim the tax credits for which they are entitled in a far shorter amount of time and with a lot less work than they would need to put in if they tried to do it on their own.

The best part is that at the end of the day, employers do not need to be concerned that they will not be able to take advantage of this beneficial tax credit.

Clarity is needed for taxpayers about the coordination of ERC and PPP financing.

Taxpayers who obtained loans through the Paycheck Protection Program (PPP) are now also eligible to claim the employee retention credit (ERC), as a result of the recent passage of the Consolidated Appropriations Act, 2021 (CAA 2021), Public Law 116-260; however, they require clarification on how the provisions of the two laws interact with one another. On Friday, the AICPA sent a letter to Treasury and the IRS recommending that such guidance state that the filing of a PPP loan forgiveness application is not an election by the taxpayer to forgo the ERC for the wages reported on the application that exceed the amount of wages necessary for loan forgiveness. This recommendation was included in the letter that the AICPA sent to Treasury and the IRS.

The Pandemic Preparedness and Response Act (PPRA) and the Economic Recovery and Compensation Act (ERCA) were both provisions that were made available to taxpayers as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Public Law 116-136, which was passed into law in March of 2020. These provisions were designed to assist taxpayers in the event that economic disruptions were caused by the pandemic. However, in accordance with the terms of the CARES Act, an employer was not qualified to make a claim for the ERC if the employer had received a protected loan as part of the PPP.

The CARES Act was revised by CAA 2021 to allow employers who had received a PPP loan to retrospectively claim the ERC for wages earned after March 12, 2020, but not for wages that were utilized to achieve PPP debt forgiveness. This provision was not included in the original CARES Act. However, it is unclear how the inclusion of wages as payroll costs on a previously filed PPP loan forgiveness application impacts an employer’s ability to claim the ERC for wages that were included on a loan forgiveness application but did not affect the amount of loan forgiveness that was granted.

In its letter, we recommend that the Internal Revenue Service and the Treasury Department issue guidance stating that the submission of a PPP loan forgiveness application does not constitute an election to forgo the ERC with regard to the amount of wages reported on the application that is greater than the amount of wages required for loan forgiveness. This recommendation was made by us.

Plan your clients to qualify for both PPP loans and ERC grants by advising them to do so.

Some of your clients may now qualify for Paycheck Protection Program (PPP) loans and the Employee Retention Credit thanks to recently enacted legislation included in the Consolidated Appropriations Act, 2021. These credits are designed to encourage businesses to keep valuable employees on staff (ERC).

There are a few alterations that are unique to the ERC that may present an opportunity for further relief for your clients. The following are some examples of important shifts that impact small businesses:

  • Prolongation of the ERC through the 30th of June in the year 2021
  • Increased the credit rate for eligible wages from fifty percent to seventy percent
  • Raised the cap on the amount of eligible wages that an employee can earn in a quarter to $10,000, up from the previous cap of $10,000 for the whole year
  • A year-over-year reduction in gross receipts of fifty percent, which has been reduced to twenty percent;
  • Established a safe harbor that enables employers to establish an employee’s eligibility by using the preceding quarter’s gross receipts.

Because of this piece of legislation, employers that have received PPP loans may still be eligible for ERC funding for the period beginning March 13, 2020.

In the past, clients who had received a PPP loan during the initial round of relief were unable to make use of the ERC. However, as a result of the new legislation, a business is eligible for the ERC even if it has been granted PPP money and debt forgiveness. This is the case so long as the payroll that was designated for the ERC was not paid using PPP funds. As was already said, the effective date of this modification is March 13, 2020.

It’s possible that your clients are unaware of this opportunity for financial planning. It is also an opportunity for you to deliver additional value to your clients by assisting them in getting the most out of the relief alternatives available to them. And the time to do so is now – before finishing the year-end payroll files of your clients, particularly if your clients have not yet filed for PPP debt forgiveness. If your clients have been granted forgiveness, they are still eligible to make a claim for the ERC; however, it will be easier for you to plan for them if they have not yet submitted an application. You may start having conversations about the opportunity with your clients even as you wait for formal advice from the IRS that is required to put these provisions into effect.

In particular, the bill enables qualifying organizations to claim claims for credits from the preceding quarter in the year 2020 during the same quarter that the bill was signed into law, which was the fourth quarter of 2020.

The ERC is a payroll tax credit for employers that is entirely refundable, and for the year 2020, it will be equivalent to fifty percent of the eligible wages that employers paid out beginning March 13, 2020. Businesses are eligible if:

  • They were either totally or partially stopped as a result of an order from a governmental authority prohibiting travel, business, and meetings during the quarter of payroll that was not paid out of PPP money, or:
  • The business’s quarterly gross receipts saw a decline of at least fifty percent as compared to the same calendar quarter in the year 2019, when measured over the course of one calendar quarter.

Many customers’ petitions for debt forgiveness qualified for 100 percent forgiveness on payroll alone once the coverage period for PPP loans was extended to 24 weeks. This was without taking into consideration the other qualifying nonpayroll expenditures that may be forgiven. However, those additional expenditures may now play a significant part in determining whether or not an individual is eligible for the ERC benefit. One of the most important steps in aiding your clients with their computation of forgiveness is to do an analysis of the ratio of payroll expenditures to other costs. If there are sufficient expenditures that are not payroll-related, restricting payroll costs to the level of 60 percent that is necessary for complete forgiveness may make it possible for the remaining payroll to be eligible for the relief that is offered by the ERC.

Your clients that have less than 100 employees are eligible to receive a credit for the full amount of employee wages paid. While it comes to clients who have more than one hundred employees, there are additional limits that must be taken into consideration when considering the ERC opportunity. The standards set out by the ERC for qualifying wages and business activity in the year 2020 are distinct from those that will be imposed by the ERC on wages paid in the year 2021. Ensure that you have a complete understanding of the particulars and how they will impact your clients.

As this extension also applies to round two of the PPP, now is the time to plan how you will assist your clients in maximizing their potential benefits from the ERC and PPP loans. A webinar will be held on January 22 to discuss changes to the ERC as well as how PPP borrowers might use these credits. During our AICPA Town Hall Series, in which Erik Asgeirsson, President and CEO of CPA.com; Lisa Simpson, Vice President — Firm Services; and other leading subject-matter experts share the latest news and updates on pressing issues affecting the accounting profession, we will also provide updates on these topics. Our Coronavirus Resource Center, which is continually updated with news and tools to assist you in navigating the COVID-19 pandemic, is another place where you may obtain further information and resources.

CPA and CGMA Carl Peterson

Carl Peterson, a Certified Public Accountant, now holds the position of Vice President of Small Firms for the Association of International Certified Professional Accountants (AICPA).

In this position, he maintains frequent meetings with small CPA companies to gain an understanding of the challenges they face and to represent these businesses from the standpoint of advocacy and company growth. Within the AICPA, Peterson acts as the spokesperson for small enterprises on topics pertaining to standard-setting, regulation, and small business concerns. It is up to him to make sure that the initiatives of the AICPA continue to cater to the requirements of small enterprises.

Carl is a certified public accountant who has worked in the past as a managing partner at Peterson, Peterson & Associates, PLC in the Minneapolis/Saint Paul area. During his tenure there, he was responsible for expanding the company’s scope of services as well as its clientele.

Available for Employers to Use When Claiming Credits for Employee Retention

The Internal Revenue Service (IRS) has informed taxpayers that businesses that owe penalties for excess income tax as a result of retroactive employee retention credit claims are eligible for penalty reduction.

What about the credit for employee retention?

The employee retention credit, often known as the ERC, is a tax credit that can result in a refundable tax refund for employers who claim for it. According to the advice provided by the IRS, an employer is required to lower the amount of their income tax deduction for “ERC eligible wages” by the amount of ERC that they received for such wages.

What exactly is the issue?

Taxpayers who claimed an ERC retrospectively were had to file an updated income tax return that reflected their reduced wage deduction, which resulted in an increase in their income tax burden. On the other hand, many of these taxpayers are unable to pay their increased income tax because they haven’t gotten their ERC payment. This is because the IRS is behind in processing modified employment tax returns that claim a retroactive ERC. This has caused a backlog.

Reduction of the penalty

Taxpayers are reminded by the Internal Revenue Service (IRS) that they may be eligible for relief from failure to pay penalties if they can establish that they have a justifiable cause for their failure to pay taxes. Notices 2021-49 and 2021-34 IRB are hereby issued.

Under certain conditions, taxpayers may be eligible for administrative relief from failure to pay fines under the First-Time Penalty Abatement program offered by the Internal Revenue Service (IRS).

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